Domestic rating agencies expect India to be impacted by Standard & Poor’s downgrade of US credit rating, though they differ on the extent.
Icra managing director Naresh Takkar told Business Standard there was likely to be an immediate impact on Indian financial markets in the short term. “In the medium term, companies that source a considerable proportion of their businesses from the US may be affected by the economic uncertainties in that market,” he said.
The Indian economy is likely to be driven more by underlying fundamentals, as well as other factors such as governance issues, inflation management, government policy reforms and the ability to tackle structural issues which have inhibited investment demand, he added.
The immediate impact of the rating action on most global markets, including India, would be negative.
“However, as the news gets absorbed, the impact of this development on the Indian stock markets is likely to be limited," Takkar added.
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Crisil said the manner in which financial markets and governments reacted over the next few weeks would determine how the prevailing fragilities in the global sovereign and financial sectors play out. "This, in turn, will impact the trajectory of global growth. Should global growth weaken further, India will be impacted," the rating agency said in a statement here. This environment adds to corporate India’s challenges, it added.
“The primary impact will be on the availability and cost of funding, both domestic and international,” said Roopa Kudva, managing director & CEO.
Globally, an increase in risk aversion would reduce appetite for emerging market risk and could affect the ability of Indian companies to raise money externally. Access to equity markets is also likely to be muted. “The second impact will be on demand. Export growth is likely to slow down and domestic private consumption, strong so far, could moderate as consumers become more cautious,” added Kudva.
However, partly mitigating factors are the easing of pressures on global crude and commodity prices. More, Indian companies are likely to be cushioned by a primarily domestic-focused economy and strong balance sheets.
